By Tiernan Ray

Shares of Intel (INTC) are up 93 cents, or almost4%, at $26.43, as the stock enjoys a banner day for upbeat remarks from the Street.

The rush of good feeling comes in advance of Intel’s report of Q4 results Thursday afternoon, after market close.

Early this morning, J.P. Morgan’s Christopher Danely, who has frequently found himself in the bear camp on Intel over the years, reversed course, raising his rating to Overweight from Neutral, and raised his price target to $29 from $20, writing that he is “making a leap of faith” on the company’s future.

Danely raised this year’s estimates to $54.5 billion in revenue and $1.90 per share in EPS, above consensus for $52.5 billion and $1.80 per share. That is above consensus for $52.6 billion and $1.89 this year.

Danely cites a number of factors indicating trends are going in the right direction in the PC market:

Intel, Hewlett Packard, Microsoft, Lenovo, and several other companies have stated PC demand is improving with HP, Microsoft, Lenovo and Asus all beating Consensus estimates on their PC businesses for the first time in years. We would note in C3Q13, HP registered YoY PC unit growth for the first time since C1Q12. In addition, Taiwan notebook ODM shipments in 4Q13 were above expectations […] As the following table illustrates, notebook shipments from the “big-4” Taiwan notebook manufacturers – Quanta, Compal, Wistron, Inventec – increased 7% QoQ in 4Q13, above our J.P. Morgan Asia Hardware team’s estimate of up 5% QoQ due to strong corporate PC demand, stable PC demand in the U.S., and improving demand from Europe […] Looking ahead to 1Q14, our J.P. Morgan Asia Hardware team expects Taiwan notebook ODM shipments to decline low double digits QoQ, roughly in line with guidance and normal seasonality of down 11% QoQ. We believe 1Q14 marks the third consecutive quarter of seasonal/above seasonal QoQ notebook unit growth. We would note this is the first time the Taiwan notebook ODM industry has experienced three consecutive quarters of seasonal/above seasonal QoQ unit growth since 2009.

Danely notes the tablet computing market, which has been a problem for the traditional PC, appears to be saturating:

It appears the tablet market is starting to saturate and price elasticity is slowing after tablet ASPs have declined rapidly over the last two years. IDC reported tablet shipments increased 37% YoY in 3Q13, well below our J.P. Morgan IT Hardware team’s expectation for 54% YoY growth. In addition, 7” tablet growth has slowed due to share loss to large-screen smartphones. As a result, our IT Hardware team expects tablet shipments to grow only 25% YoY in 2014, down from 53% YoY growth in 2013.

And Krzanich is sounding more realistic in his forecasts for the company’s business than former CEO Paul Otellini, contends Danely, and is spending the company’s investments in mobile computing chips more rationally:

Intel expects the PC market to decline low-single digits YoY in 2014, in line with most other companies in the PC supply chain and below our J.P. Morgan IT Hardware team’s forecast for a 0.5% YoY decline. We believe Intel’s more realistic outlook on the PC market is a positive, as we have been saying that Intel needs to acknowledge and plan for the PC market not growing, and adjust its spending and resources. In addition, Intel indicated it is lowering its spending on handsets by more than 20% YoY in 2014 versus 2012, as the company is focusing only on the largest handset makers. We believe the lower handset spending is another positive for the company as we have been saying that the smartphone applications processor market opportunity is too small to matter, and Intel architecture is not competitive in cost or power versus ARM.

Instead, Intel’s intent to sell its contract manufacturingservices to other chip makers is a smart way to play mobile, he thinks, with the total revenue opportunity for Intel being perhaps $6.3 billion annually by 2017:

We believe way for Intel to gain material revenue and earnings from the “mobile” market (tablets/cell phones) is via foundry since x86 processors are not competitive versus ARM processors in non-Windows applications, i.e. almost every tablet and phone. We believe Intel is generating interest in its foundry business due to a combination of TSMC missteps and Intel promising a one year lead over TSMC and others at 10nm, which would reach production in 2016. Since Altera was announced in February 2013, Intel added Microsemi, and we believe Cisco and Brocade will follow.

Apple (AAPL) could yet turn out to be a customer for foundry, he believes:

Our J.P. Morgan Samsung analyst J.J. Park estimates the Apple foundry business contributed roughly $3.9 billion in revenue for Samsung in 2012, and we estimate it could grow roughly 21% YoY to $4.7 billion in 2013. Our analysis indicates if Intel were to win 50% of Apple’s foundry business at 25% operating margins (roughly in line with Intel’s corporate average), it would add roughly $3.4 billion in incremental sales (6%) and $0.13 in EPS upside (6%) in 2017E.

ARM itself has acknowledged it is several years away from gaining material share in the server market. The company recently indicated it expects only “modest” volumes for 64-bit ARM server processors in 2014. In addition, we believe it will be difficult for ARM to meet its long-term target of roughly 10%-15% share of the server microprocessor market due to inferior performance, process technology, and software ecosystem relative to Intel.

The dividend yield is impressive:

We continue be impressed by Intel’s commitment to returning cash to shareholders via dividends. Intel has raised its dividend four times since 1Q08, and the stock has a 3.5% dividend yield, the second highest among large cap semiconductor stocks and well above the average Mega Cap Tech dividend yield of 2.6% and the S&P 500 average of 1.9%.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.